The Pakistan economy is in distress. How else to describe an emerging market that has seen three currency devaluations since December, depleted its foreign-currency reserves and may soon ask for a bailout from the International Monetary Fund, less than two years after its last $6.6 billion emergency cash infusion.

It all adds up to “some daunting challenges,” said interim Finance Minister Shamshad Akhtar.

Complicating matters is a raucous parliamentary election, amid much political tumult and civil-military tensions, on July 25.

Two parties are vying for control of the next government: The Pakistan Muslim League-Nawaz, led by the family of ex-premier Nawaz Sharif, and the opposition Movement of Justice run by the popular former national cricket captain, Imran Khan.

Pakistan is currently run by a caretaker government, which took the reins in June after Sharif’s party ended its five-year term. This time last year the nation’s Supreme Court tossed Sharif out of power after corruption charges about his family’s offshore holdings surfaced after the publication of the Panama Papers in 2016.

He was convicted last week and handed a 10-year jail sentence. Sharif has denied financial wrong-doing and has been barred from holding public office. His younger brother Shehbaz is the party’s current president and may serve as prime minister if the party prevails.

Whoever succeeds will face some tough policy choices. Even amid wider emerging-market turmoil, Pakistan stands out what with the rupee down almost 10 percent against the dollar this year.

South Asia’s second-largest economy has gone through decades of erratic growth, debt blowouts and balance-of-payments crises. Despite an economy growing at its fastest pace in a decade, the government’s finances still remain shaky.

This is a country renowned for rampant tax avoidance - from the highest political and business figures to market grocers - with only about 1 percent of Pakistan’s more than 200 million people filing income returns.

A government amnesty intended to lure back ill-gotten wealth isn’t expected to boost foreign currency reserves significantly, which currently hovers at $9.8 billion, close to the lowest level in three and a half years.

Pakistan’s current account gap has increased by 45 percent to $16 billion in eleven months ended May, while its trade deficit rose to $3.7 billion in the same month. The country’s external debt and liabilities, now at 31 percent of GDP, is at its highest level in six years.

“There is a general five to six-year cycle where there is an expansionary phase followed by a fairly hard landing,” said Maheen Rahman, the chief executive officer of Karachi-based Alfalah GHP Investment Management, which handles about 48 billion rupees ($394 million).

“That really has to change - exports and tax collection have to go up.”

Benefiting for years from low oil prices, Pakistan is now contending with the costs of rising crude, which the central bank says contributed to further balance-of-payments deterioration as foreign inflows remained limited.

Added to that is Islamabad’s mounting debt to China, which has provided more than $60 billion in loans and financing as part of its Belt and Road infrastructure programme.

“It is hard to see China providing the scale of balance-of-payments support which is needed,” said Timothy Ash, a senior strategist at BlueBay Asset Management in London, which has reduced its dollar debt holdings in Pakistan ahead of the elections and doesn’t hold any local currency assets.

Pakistan’s rupee rose 0.1 percent to 121.65 per dollar on Tuesday.

Terrorism financing

Yet an IMF loan may come with stringent conditions as Pakistan’s troubled relationship with the US hit new lows this year. In January, President Donald Trump cut military aid after he accused Islamabad of supporting militant groups that attack Afghanistan. Thanks to a US push, Pakistan was added onto a global terrorism-financing monitoring list in June.

Short-term financial assistance is Pakistan’s pressing need, but business leaders say significant and unpopular reforms after the national ballot will have to be pushed to get the nation out of its rutted economic cycle.

“India has similar problems, they run these large deficits but it is supplemented by foreign direct investment, portfolio investments and a lot of tourism,” said Waleed Saigol, a director at Maple Leaf Cement Factory in Lahore.

“We don’t have those avenues and we run into trouble. Until and unless we start reforming, things won’t change.”

Welfare state

Senior officials in Khan’s party have indicated that they will go to the IMF for support if elected. Khan himself has repeatedly blamed widespread corruption for the problems besetting Pakistan’s economy. He has pledged to fix state institutions, create an “Islamic welfare state” and reduce the nation’s widening deficits by taxing the country’s elite.

“Corruption has destroyed our state institutions, which have destroyed our capacity to give good governance,” Khan said while campaigning in Karachi, Pakistan’s financial hub, last week. “That’s what stops investment coming into the country.’’

While in office Sharif’s pro-business Muslim League has said Pakistan doesn’t need an IMF bailout, highlighting its success in reducing power cuts, attracting Chinese infrastructure funding and improving national security. The party introduced its one-time amnesty to lure overseas funds stashed away by rich Pakistanis and vows to reduce corporate taxes.

Pakistan’s plunging currency, meanwhile, still is far from stable and veteran emerging market investor Mark Mobius thinks the government will need an adrenaline shot from international lenders.

“Given the currency movements, there is a good chance that they will need to go to the IMF,” said the founder of Mobius Capital Partners.